While Ontario’s proposed solvency changes for defined benefit pension plans may help plan sponsors with funding obligations, they may put plan members in a more precarious position, says Michael Mazzuca, a partner in the pension and employee benefits group at Koskie Minsky LLP in Toronto.
“There’s obviously a suggestion that, in addition to the emphasis on going concern, there’s going to be a [provision for adverse deviation] requirement,” he says, noting it would act as a contingency reserve.
Read: Ontario announces long-awaited DB solvency reforms
“I think that enhances the funding obligations, and any time you enhance the funding obligations and put more money into the plan, that enhances the security of the benefits for the plan members. I think that’s the positive, but we don’t know how big a contingency reserve or margin that [provision] is going to require.”
The changes also increase the risk to plan members if their employer enters into bankruptcy. While the amendments would increase coverage through the pension benefits guarantee fund, Mazzuca isn’t sure those enhancements are sufficient, since plan members would only receive coverage to a maximum of $1,500 per month.
“It’s a complicated area, and the backgrounder we saw on Friday is only a page long or so,” he says. “The devil’s in the details, and there’s a lot of details that still need to come out.”
Read: Eliminating solvency funding on the table as Ontario review DB rules
Mazzuca also points out that multi-employer and jointly sponsored plans aren’t part of the proposed changes. He notes it makes sense for those types of plans to have different rules, since their risks differ significantly. For example, one company going under won’t have a significant impact on a multi-employer plan.
“Most MEPPs in Ontario have now had temporary solvency funding relief for close to 10 years, if not longer,” he says. “I think that’s worked, so for MEPPs, we’d like to see solvency funding done away with on a permanent basis, as opposed to continually renewed temporary situations. With a MEPP, where the contributions are typically fixed under a collective agreement, you can’t go back to the employers generally for additional funding, so the risks are quite different.”
What do you think? Do Ontario’s revamped pension funding rules make sense? Should other provinces follow suit? Have your say in our weekly poll.
Read: A look at Quebec’s pension solvency changes one year on
Last week’s poll looked at whether it’s time for Canada to offer more generous vacation provisions. The majority (78.5 per cent) of respondents said yes, as minimum employment standards provide too little time off and Canada needs to catch up to other jurisdictions. The remainder (22.5 per cent) said no, as many companies wouldn’t be able to afford to fund more generous leaves.
